Further Reading

The Nintendo Switch has been an unqualified success so far, with Nintendo recently promising increased holiday season production to meet demand and expectations of over 16 million total sales by the end of March 2018. Reporting now suggests the company is expecting that sales pace to increase markedly in the coming year, though, and another associated production increase would come with both a fair amount of potential and risk for the company.

Further Reading

The production news comes from The Wall Street Journal, which cites "people with direct knowledge of the matter" in reporting that Nintendo plans to make 25 to 30 million Switch units in the coming fiscal year (which starts in April 2018). That's a major increase from the 13 million produced for the current fiscal year, which itself was a sizable increase from the company's initial plans to make just 8 million units for the console's first full year on shelves. WSJ's sources say those production numbers could go up even higher if coming holiday season sales are strong.

Even the low end of that 25 million sales range is ambitious, to put it mildly. The Wii sold 25.94 million units in its second full fiscal year, during the height of the sellout mania surrounding that motion-control console. These days, the market-leading PS4 sold just 17.7 million in its second full fiscal year on shelves. Even the market-dominating PS2 sold just 22.52 million units in its most successful fiscal year, roughly three years after launch.

While those comparisons don't line up perfectly with the Switch (which launched in March and not the October/November period of previous best-selling consoles), the reported production increase suggests Nintendo expects the Switch to sell at something like a record-setting pace for this point in the lifespan of a modern consoles.

On the other hand, there are some signs the Switch's sales rate may already be plateauing. The once hard-to-find system is much easier to find on store shelves and online retailers of late (though that will likely change during the holiday sales rush). And while the Wii had titles like Wii Sports and Wii Fit attracting lapsed and casual gamers to the low-priced hardware in its second year, the Switch's lineup is tilted more heavily towards Nintendo's more established franchises and traditional gameplay types (Nintendo President Tatsumi Kimishima has hinted that more "casual" fare is in the works for the system).

The kind of gamers likely to be attracted by Mario, Zelda, and the like may be more front-loaded toward early adopters who have already purchased the system. That happened in a much more extreme fashion with the Wii U, which sold out in its first holiday season before quickly dropping off.

But maybe a comparison to the Wii isn't the right one for the Switch. In a recent investor Q&A, Nintendo revealed that roughly 30 percent of Switch owners use the system primarily in portable mode (i.e. more than 80 percent of the time), with an additional 50 percent using the portable features at least 20 percent of the time. That suggests the Switch may be more comparable to the Nintendo DS line, which eventually became Nintendo's best-selling hardware ever, with more than 154 million shipments (including 25.86 million in its second fiscal year).

The DS' success was driven in part by many households that bought a DS unit for each player in the house rather than sharing a single TV-based console. Similar "multi-Switch" families could help juice the Switch's total sales potential, especially if and when the hardware comes down in price.

The risk

But while the Switch definitely has the potential to see sales increase to stratospheric heights of past Nintendo best-sellers, it's not at all guaranteed at this point. And ramping up production this high this quickly brings with it some level of risk.

Whenever I hear the conspiratorial complaint that Nintendo is "intentionally" limiting supply of its consoles to create an artificial appearance of demand, my immediate response is "compared to what?" Nintendo can't just flip a Switch and roll an infinite number of hardware units off the production lines to instantly meet the demand reported by retailers. The company has to estimate what demand will look like months or years ahead of time, then it makes significant investments in raw parts and assembly line resources based on those estimates. Plus, conspiracy theories aside, there's no real upside to underestimating demand and leaving potential customers hanging while retailers wait for shipments.

Enlarge/ Underestimating demand for the NES Classic was bad. Overestimating demand for the Switch would also be bad.

What the "Nintendo should just make more" brigade often fails to consider is that this kind of quick production ramp-up to meet expected demand can be extremely costly and risky if that demand doesn't materialize. Producing 25 to 30 million Switch units in a year is a great idea if people are increasingly eager to buy the system in the coming months. But if that demand declines as the market starts to saturate, or if it even stays at the already healthy pace of about 13 million units per year, Nintendo will be left with a lot of unsold inventory eating up its cash flow and warehouse space.

One interesting wrinkle here is that increasing the production rate of the Switch will probably decrease the per-unit cost Nintendo has to incur to make each unit. Thus, if sales start to level off at the current $300 price point, Nintendo could feasibly lower the price by the 2018 holiday season to clear out inventory while continuing to sell the hardware at a profit.

Whatever ends up happening, the reported quick ramp up in Switch production shows Nintendo has a nearly boundless confidence in the system's future. That's a good sign after such confidence was in very short supply in the 3DS and Wii U era. But that kind of confidence could end up looking like overconfidence if the Switch ends up selling at a merely healthy pace rather than a potentially record-setting one. So despite a strong start and Nintendo's apparent expectations, there's still some risk in assuming the Switch will end up as a Wii- or DS-level success for the company.

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War Stories | Ultima Online: The virtual ecology

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Kyle Orland
Kyle is the Senior Gaming Editor at Ars Technica, specializing in video game hardware and software. He has journalism and computer science degrees from University of Maryland. He is based in the Washington, DC area. Emailkyle.orland@arstechnica.com//Twitter@KyleOrl

115 Reader Comments

Couldn't justify $400CAN hardware for one game, so I went the CEMU route to play BotW. Well, a few hours in, and with Mario dropping and getting rave reviews, I decided I want that quality of gameplay in a portable format, so as of yesterday I'm now a Switch owner.

Really good exclusives will take a little while to get here, but the sales numbers speak for themselves. Switch will be getting top-tier games.

I know Nintendo has gotten a lot of crap for stock issues in the past (even the recent times with the NES Classic), but I felt bad for the criticism they got for the Switch. They'd initially planned to produce 8 million units. The Wii U sold like 12 million units in its lifetime; how was Nintendo supposed to know that the Switch would easily outclass that in like 9 months?

Being aggressive and assuming that the Switch would easily sell at PS4 levels would have easily been a massive risk for the company. Microsoft sold something like a bit over 10 million in its first year of the Xbox One. The PS4 sold somewhere in the realm of 14-18 million in a year, and was considered a huge success, generally.

Eight million to start was a pretty conservative estimate, but hardly deliberately constraining supply. Sixteen million is ambitious in and of itself, but it seems like they really want to put that conspiracy to bed here. Hopefully it doesn't bite them.

I've bought me and my son one each shortly after my wife passed away, makes for some good bonding time throwing shells at eachother in MK8 during cold weather.

It's an impressive little console in a nice well thought out package, just wish they would fix the annoying issue with digital game sharing, it should be as simple as handing over a physical cart.

I'm a little bit skeptical of the WSJ's report of 25-30 million. That is optimistic to the point of being unrealistic. Even if Nintendo is seriously bullish. The only way that even makes sense is if they can get Pokemon out in time for holiday 2018.

That said, you've touched on one of the reasons why Nintendo can be bullish in general. The Switch being a handheld encourages buying one for each game-playing member of a household. So people like you might have bought a single Wii or Playstation or XBox end up getting multiple Switches. That matches one of the reasons why Nintendo's other handhelds have always maintained lofty sales figures.

And with handheld oriented titles like Pokemon, Ace Attorney and Square Enix's mid-level RPGs all coming up, Nintendo's set to place additional focus on that segment of the market.

Good for Nintendo. Now if they dont screw up advertising for the upcoming holiday season they might do well with this one. One of my complaints over the past 3 years being a WiiU owner was the lack of advertising around the holiday season. Then right after xmas you saw a few commercials. It was silly. And I really loved the gameplay on WiiU. That honken controller was one of the most comfortable console controllers I have ever held. It didn't make you feel like you were slumped over with your hands in your crotch. I am still too salty to buy one this year, but who knows, maybe next year. I just cant turn my back on Mario games, although I wish I could. Time will tell.

There's also people like me who aren't really Nintendo diehards in any way, but are looking for a console that's about fun without the strings attached of, say, loot boxes. Or achievements. Or whatever other systems that are designed to make me keep playing just for the sake of playing. The Switch stands as a nice beacon of fun so far

Eh, I'm not sure if this is wise. Nintendo are likely riding a sales wave right now, because they released two massive, high profile exclusives from arguably their two biggest properties - Mario and Zelda - in reasonably close proximity to one another.

That isn't to say sales can't remain strong, but enough to merit a bump in production like this? Risky.

Just a thought - Nintendo expects 13 million units to be shipped for FY 2017, and sold 2.7 million in FY2016 (launch month). I kind of wonder if WSJ isn't conflating a desire to reach 30 million units shipped/sold total by the end of FY2018 (so another 13-14 million units) with a desire to ship 30 million in that year alone?

If Nintendo were to actually manage to ship 30 million in FY2018 alone, that would put them ahead of what the PS4 shipped in a relatively similar time frame. Sony reached 30 million units shipped total in its 23rd month of release and 38 million by the 26th month. This WSJ story has Nintendo at 41-46 million in 25 months - and with only two holiday shopping seasons against the PS4's three.

Yes, but once they realized the demand for the NES Classic was there, instead of making the investment to make more of them, they just quit. And for that, Nintendo has earned a whole heap of my enmity. Serves 'em right if they end up with 15 million unsold Switches that need to be buried in the New Mexico desert. /sour grapes

They did not 'quit', they simply had no other option if they wanted to have any launch product of the already scheduled SNES classic to divert further motherboards and switch the production lines over to fabbing cases for that unit.

There is only so much chip-fabrication 'bandwidth' available. In fact, back in the day Atari was able to hold off Mattel's planned launch of the Intellivision and Coleco's launch of the ColecoVision for a few years by buying up all available n-channel chip fabrication bandwidth to leave no room for the others to be able to buy enough chips to make their systems.

About to buy a close friend a Switch for Xmas. Figure she'll either punch me (For dropping that kinda money on her), playfully, or squee. Either way I win. =D Switches are all over the place right now. Going to pick it up this afternoon. I suspect that if I waited until Black Friday that would change dramatically.

There's also people like me who aren't really Nintendo diehards in any way, but are looking for a console that's about fun without the strings attached of, say, loot boxes. Or achievements. Or whatever other systems that are designed to make me keep playing just for the sake of playing. The Switch stands as a nice beacon of fun so far

In what sense is an achievement an attached "string"? They have no impact on the game whatsoever, and simply track milestones or accomplishments.

Sony and Microsoft's boxes also have literally dozens (hundreds?) of high-profile offerings that don't contain loot boxes. And if Call of Duty or whatever comes to the Switch, you can bet it'll have the same loot boxes.

Nintendo makes great first-party games, but people over-romanticize them as a "beacon of fun".

I read that as bacon of fun. That would be epic if Nintendo was internationally recognized as the bacon of fun.

Eh, I'm not sure if this is wise. Nintendo are likely riding a sales wave right now, because they released two massive, high profile exclusives from arguably their two biggest properties - Mario and Zelda - in reasonably close proximity to one another.

That isn't to say sales can't remain strong, but enough to merit a bump in production like this? Risky.

Supposedly a new Metroid game is coming out next year. That might be enough to bump up sales and clear out remaining inventory depending on when it launches. I suspect around now next year.

They did not 'quit', they simply had no other option if they wanted to have any launch product of the already scheduled SNES classic to divert further motherboards and switch the production lines over to fabbing cases for that unit.

There is only so much chip-fabrication 'bandwidth' available. In fact, back in the day Atari was able to hold off Mattel's planned launch of the Intellivision and Coleco's launch of the ColecoVision for a few years by buying up all available n-channel chip fabrication bandwidth to leave no room for the others to be able to buy enough chips to make their systems.

I'm pretty sure they hadn't even announced the SNES Classic yet, when they ceased production of the NES Classic.

You're right.

From what I understand, Nintendo really just wanted to put something out to stay relevant in the console space for the 2016 holiday season given WiiU had been discontinued. We've all seen those low-quality Atari and Sega retro systems on the market, and given they don't sell all that well, it seems Nintendo never expected their own effort to be the hit it was. They would have contracted out for a specific production run long before the first unit hit Amazon.

The success left them with a problem: People wanted more NES Classics, but the production was meant to be temporary as Nintendo did not want to distract market interest away from their forthcoming flagship console release. So they opted against extending the NES Classic production run. Until Switch established its place as a runaway success.

So with that aspect of their business stable and thriving, they felt they could go back and revisit the classics and collect all that money that falls from the sky. Given the internals of the SNES Classic and NES Classic are apparently almost identical, it means they can easily swap over to NES production when the SNES run reaches its end - thus Nintendo's announcement of SNES Classic now, more NES Classic later.

Eh, I'm not sure if this is wise. Nintendo are likely riding a sales wave right now, because they released two massive, high profile exclusives from arguably their two biggest properties - Mario and Zelda - in reasonably close proximity to one another.

That isn't to say sales can't remain strong, but enough to merit a bump in production like this? Risky.

Supposedly a new Metroid game is coming out next year. That might be enough to bump up sales and clear out remaining inventory depending on when it launches. I suspect around now next year.

Metroid will probably move some consoles, but it doesn't have the kind of pop culture relevance to consumers (such as parents), of something like Mario. Super Mario is probably one of the most singularly recognizable icons of pop culture on Earth, and certainly in all of video games. Link is probably up there too.

By the time this increased production actually hits a shelf, holiday 2017 will be in the rearview mirror, and we will be a ways out from the launches of Zelda and Mario

No speculation of a price drop or Nintendo realizing with initial sales that this could be the first system they sell at a loss. But I'm guessing one of these two scenarios is happening with that amount of volume.

Nintendo aren't going to touch the price of their system, until they see some sort of red flag in their sales data

They did not 'quit', they simply had no other option if they wanted to have any launch product of the already scheduled SNES classic to divert further motherboards and switch the production lines over to fabbing cases for that unit.

There is only so much chip-fabrication 'bandwidth' available. In fact, back in the day Atari was able to hold off Mattel's planned launch of the Intellivision and Coleco's launch of the ColecoVision for a few years by buying up all available n-channel chip fabrication bandwidth to leave no room for the others to be able to buy enough chips to make their systems.

I'm pretty sure they hadn't even announced the SNES Classic yet, when they ceased production of the NES Classic.

You're right.

From what I understand, Nintendo really just wanted to put something out to stay relevant in the console space for the 2016 holiday season given WiiU had been discontinued. We've all seen those low-quality Atari and Sega retro systems on the market, and given they don't sell all that well, it seems Nintendo never expected their own effort to be the hit it was. They would have contracted out for a specific production run long before the first unit hit Amazon.

The success left them with a problem: People wanted more NES Classics, but the production was meant to be temporary as Nintendo did not want to distract market interest away from their forthcoming flagship console release. So they opted against extending the NES Classic production run. Until Switch established its place as a runaway success.

So with that aspect of their business stable and thriving, they felt they could go back and revisit the classics and collect all that money that falls from the sky. Given the internals of the SNES Classic and NES Classic are apparently almost identical, it means they can easily swap over to NES production when the SNES run reaches its end - thus Nintendo's announcement of SNES Classic now, more NES Classic later.

It's brilliant. It really is. And can you believe that some people say that Nintendo doesn't know what it's doing when it comes to selling their products?! They know exactly what they are doing. Capitalism at its best.

I think that the only way that Nintendo keeps the demand up for the Switch is to continue to release games at the cadence that they did in 2017. It was incredible as a lapsed Wii owner to see hit after hit rolling out. I have like two games for my One S, and hundreds for my PC that were mostly bought around $10-20 a pop, but somehow I bought 5 full-price games in the first 8 months of the system being out. Each new premium game will bring more people to the store to get one.

They need to move all the kids over from the 3DS to the Switch by putting out the next installments on the Switch. Then they need to get some parent pleasers like a Switch Sports out. Then they need to start getting release day ports of major franchises and capitalize on being the only portable COD/Battlefield/Assassin's Creed experience.

Eh, I'm not sure if this is wise. Nintendo are likely riding a sales wave right now, because they released two massive, high profile exclusives from arguably their two biggest properties - Mario and Zelda - in reasonably close proximity to one another.

That isn't to say sales can't remain strong, but enough to merit a bump in production like this? Risky.

Supposedly a new Metroid game is coming out next year. That might be enough to bump up sales and clear out remaining inventory depending on when it launches. I suspect around now next year.

Metroid probably hits a subset of the audience that Zelda and Mario reach, just the "core Nintendo fan". It doesn't have the pop culture awareness and accessibility.

I'm guessing the next big tent pole game would be that rumoured Pokemon title; that could pull the kids from the 3DS and pull the lapsed Nintendo gamers and people who just got into / back into that franchise from Pokemon Go (assuming it doesn't take too long to land.)

No speculation of a price drop or Nintendo realizing with initial sales that this could be the first system they sell at a loss. But I'm guessing one of these two scenarios is happening with that amount of volume.

Nintendo aren't going to touch the price of their system, until they see some sort of red flag in their sales data

That's fair. The mario odyssey bundle was tempting. Throw in a 128GB memory card and a free game and I'd be sold.

I know for a while earlier on in peak iphone demand for apple (peak relative to capacity to produce), investors were dogging apple about increasing its production, because however much fans loved the hype of iphones being sold out everywhere, investors only cared about all the lost money and the signs of immature logistics.

Think like a company owner or an investor here, folks. Nintendo gets no money from secondary market marked-up/scalper sales. Every customer who has to wait for a product is money that's at best money left on the table and at worst a customer who will substitute for something else (or decide it's not worth it) by the time inventory is available.

I know for a while earlier on in peak iphone demand for apple (peak relative to capacity to produce), investors were dogging apple about increasing its production, because however much fans loved the hype of iphones being sold out everywhere, investors only cared about all the lost money and the signs of immature logistics.

Think like a company owner or an investor here, folks. Nintendo gets no money from secondary market marked-up/scalper sales. Every customer who has to wait for a product is money that's at best money left on the table and at worst a customer who will substitute for something else (or decide it's not worth it) by the time inventory is available.

To a limited extent, there actually can be good reasons to create artificial scarcity for a product. Scarcity creates buzz, and buzz creates media coverage. All of which can create demand. "Tickle Me Elmo" didn't became a sales sensation for one holiday years ago, simply because it was an amazing toy. It generated massive amounts of coverage because it was impossible to find, which made people feel like they had to get one. Artificial scarcity can make something seem more in-demand than it is, and then perception becomes reality.

"Beanie Babies" created an entire fad and collector's market, based on intentionally limiting supply of their products and turning them into sought after collectibles. In some cases, people paid thousands of dollars on the third party market, to acquire.... plush bean bag animals.

I don't think this is necessarily the case with the Switch, however. It's been months, and demand can turn to frustration or anger, the longer people can't get something. And you're not going to get third-party buy-in from publishers, without an install base. Nintendo have lots of incentives to try and get as many Switches out there as they can.

I know Nintendo has gotten a lot of crap for stock issues in the past (even the recent times with the NES Classic), but I felt bad for the criticism they got for the Switch. They'd initially planned to produce 8 million units. The Wii U sold like 12 million units in its lifetime; how was Nintendo supposed to know that the Switch would easily outclass that in like 9 months?

Being aggressive and assuming that the Switch would easily sell at PS4 levels would have easily been a massive risk for the company. Microsoft sold something like a bit over 10 million in its first year of the Xbox One. The PS4 sold somewhere in the realm of 14-18 million in a year, and was considered a huge success, generally.

Eight million to start was a pretty conservative estimate, but hardly deliberately constraining supply. Sixteen million is ambitious in and of itself, but it seems like they really want to put that conspiracy to bed here. Hopefully it doesn't bite them.

Nintendo's Wii, and almost every Gameboy post DS has had shortage issues. The WiiU is an outlier and there were reasons given as to why that was. Nintendo may screw themselves however by dragging their feet for so long and by making bundled systems with games that are arguably not must haves. What I see locally and others can very well verify this, plenty of bundles, not a single switch only in stock.

Eh, I'm not sure if this is wise. Nintendo are likely riding a sales wave right now, because they released two massive, high profile exclusives from arguably their two biggest properties - Mario and Zelda - in reasonably close proximity to one another.

That isn't to say sales can't remain strong, but enough to merit a bump in production like this? Risky.

Supposedly a new Metroid game is coming out next year. That might be enough to bump up sales and clear out remaining inventory depending on when it launches. I suspect around now next year.

Metroid probably hits a subset of the audience that Zelda and Mario reach, just the "core Nintendo fan". It doesn't have the pop culture awareness and accessibility.

I'm guessing the next big tent pole game would be that rumoured Pokemon title; that could pull the kids from the 3DS and pull the lapsed Nintendo gamers and people who just got into / back into that franchise from Pokemon Go (assuming it doesn't take too long to land.)

I think we won't see Pokemon until there's an associated Switch Mini that is cheaper and more friendly for small hands to hold. It's just like the $80 2DS hardware that coincided with a major Pokemon release.

Pokémon was already announced this past E3. It's confirmed the next mainline series game is coming to Switch.

Eh, I'm not sure if this is wise. Nintendo are likely riding a sales wave right now, because they released two massive, high profile exclusives from arguably their two biggest properties - Mario and Zelda - in reasonably close proximity to one another.

That isn't to say sales can't remain strong, but enough to merit a bump in production like this? Risky.

Supposedly a new Metroid game is coming out next year. That might be enough to bump up sales and clear out remaining inventory depending on when it launches. I suspect around now next year.

Metroid probably hits a subset of the audience that Zelda and Mario reach, just the "core Nintendo fan". It doesn't have the pop culture awareness and accessibility.

I'm guessing the next big tent pole game would be that rumoured Pokemon title; that could pull the kids from the 3DS and pull the lapsed Nintendo gamers and people who just got into / back into that franchise from Pokemon Go (assuming it doesn't take too long to land.)

I think we won't see Pokemon until there's an associated Switch Mini that is cheaper and more friendly for small hands to hold. It's just like the $80 2DS hardware that coincided with a major Pokemon release.

Pokémon was already announced this past E3. It's confirmed the next mainline series game is coming to Switch.

Of course there is. A Pokemon game is just as obvious as new hardware models coming out.